Blockchain Technology – How Is It Shaping The World Around Us?

Contrary to what many of you might think, the terms Bitcoin and Blockchain are not synonymous. Block chain is the underlying technology which has made Bitcoin possible. Following the success of Bitcoin and other cryptocurrencies, new applications of Blockchain technology are being discovered in areas ranging from real estate, food quality control to identity verification and even electronic voting.

Today, over 5400 merchants worldwide accept Bitcoin as a legal tender. Several major companies including Microsoft, PayPal, Shopify, Expedia and Overstock.com accept Bitcoin as a viable method of payment. In words of Tesla CEO Elon Musk:

“Bitcoin is quite
brilliant. Paper money is going away in the future, that is for sure. Crypto is
a better way to transfer values than a piece of paper.”

The inception of
Bitcoin and Blockchain

It all began when the world was reeling under global financial crisis of 2008. A developer, or group of developers under the pseudonym ‘Satoshi Nakamoto’ who apparently had been working on the Blockchain technology since early 2007, published a white paper on a ‘peer-to-peer network’ that could work autonomously without a central authority.

In January 2009, Nakamoto released the first Bitcoin
software that launched the first units of Bitcoin cryptocurrency.

As more cryptocurrencies came into existence, Blockchain gained the attention of industry experts; they realized the technology could be a game-changer.

Over the past few years, Blockchain technology has found applications in an array of industries, with most such applications still in the testing stages.

Key features of
Blockchain

Before we delve deep into understanding the nuances of Blockchain, it would be good to know certain key features of this technology:

Blockchain is a distributed digital ledger which keeps a record of transactions. A
transaction could be a movement of goods, currency or data.

A set of validated transactions gets added to
the Blockchain as a block. All the blocks are linked to each other forming a
chain of sorts, hence the name.

Once added to the Blockchain, a transaction
cannot be modified under any circumstance.

A Blockchain has a network of computers called
nodes; each node has a copy of the entire Blockchain.

There is no administrator node in Blockchain
network. All the nodes can validate a transaction but no node can modify it.

Cryptographic Hashing

Cryptographic hashing lies at the core of Blockchain
technology. It is the feature that makes a Blockchain immutable.

Hashing involves taking an input string of any length and
producing an output string (hash) of a fixed length.

For example:

Even a miniscule change in input changes the output hash
completely. Similar inputs, therefore, do not have similar outputs. For
example, the hash outputs of 100202033 and 100202034 will be completely
different from each other.

This property makes it impossible for anyone to guess the
input by looking at output.

Obviously, two different inputs can never have the same hash
output.

In any Blockchain, every block contains hash of the data in
the previous block. For example, if a block chain has 500 blocks, 500th
block will have hash of the 499th block, it will have a hash value of
498th block and so on.

This single property makes a Blockchain incredibly reliable.

Consider a situation where a hacker attacks block 4 in a
chain. We know that even a slight change in input data changes the hash
completely, so any change in block 4 will change its hash. Since all blocks
have hash of the previous block, block 5 data and hash will change. This, in
turn, will change the data and hash of all subsequent blocks in the chain.

The Blockchain network will notice this change immediately
and reject it. That is why a Blockchain is considered immutable.

Public Key
Cryptography

Public Key Cryptography is a system which uses a pair of
keys: a public key and a private key. Every public key has a corresponding
private key. The public key can be known to many, but the private key should be
known to its owner only.

In a Blockchain, public-private key combination is used to
encrypt and later on decrypt messages transmitted across the network. A public
key can be considered equivalent to an email address and private key a password
to access any mail sent to that email address.

For example, Mary wants to send a message to Jack over the
Blockchain network. Mary will use her public and private key and Jack’s public
key to encrypt the message.

The message will be forwarded to Jack. If a third party
intercepts the message, all they will see is a string of random numbers and
letters. Jack will later on use his private key to decrypt the message.

It is impossible to guess the private key using the public
key. A user can, therefore, send his public key to anyone on the Blockchain
network and be assured that his private key will not be stolen.

Nodes

A Blockchain consists of blocks of transactions. These
blocks are stored on nodes. A node can be a computer, laptop or a bigger
server. All the nodes in the Blockchain remain connected to each other and
constantly exchange the latest Blockchain data with one another. As a result,
all the nodes in any network remain updated with respect to any changes in the
network.

Every node has a copy of the transaction history of the
Blockchain. No node ‘owns’ the network.

Each circle in the above figure
represents a node in the Blockchain network; all the nodes are interconnected
and have a copy of the entire Blockchain.

When a miner tries adding a new block of transactions to the
Blockchain, it is broadcast to all the nodes on the network. Nodes can accept
or reject a block depending on validity of transactions in the block. On
accepting a new block in the Blockchain, nodes save it over the older blocks
they have already stored.

How mining takes
place and transactions are processed in a Blockchain

Every time a transaction is initiated on the Blockchain, it
is broadcast to the entire network, waiting to be picked by one or more miners
in the Blockchain (miners are special nodes on Blockchain). As long as a
transaction is not picked by any miner, it keeps lying in a ‘pool’ of
non-validated transactions.

Miners pick up some transactions from this pool and form a
block. A particular transaction can be picked up by more than one miner to be
included in his block.

Before adding a transaction to his block, the miner needs to
check if the transaction is eligible for execution based on history of the
Blockchain. If, according to transactional history of the Blockchain, the
sender’s wallet has adequate balance, then the transaction is eligible for
inclusion in the block. Miners usually prefer transactions with higher
transaction fees.

The block thus selected needs to be added to the Blockchain
network. For this, the miner requires to generate a hash output (also called as
signature) for the data present in the block.

This hash output is a 32 digit string of random letters,
numbers and symbols, which depends on the input string and is therefore unique
for each block of transactions. Each miner will thus work to generate a
different hash output.

Nonce

During mining, miners compete to generate a hash output for
the block they are working on. A rule of Bitcoin Blockchain is that the hash
output for the block needs to start with a certain number of zeros.

Since the hash output is fixed for any fixed input string,
miners need to change a part of the data inside the block (called nonce) each time they guess the hash
output. Each time a miner changes the nonce, the input string gets changed
which leads to a different hash output.

Miners keep on changing the nonce till they get a hash
output that starts with the required number of zeros. Since the process
involves a lot of trial and error, mining consumes a lot of time and
computational power (and hence electricity). For this reason, every node on the
network does not mine theblocks.

Proof of Work

Once a miner finds the right hash output for his block, he
broadcasts the block and its hash (signature) to all other miners on the
network. Other miners check if the hash attached to the block is legitimate.
They do so by taking the data on the broadcasted block and hashing it to find
if their hash output matches with the hash provided by the miner.

If both hash outputs match, the block gets validated and can
be added to the network. The hash output provided by the miner is a proof that
work has been done on the block and hence regarded as ‘Proof of Work’.

The validated block is broadcast to all other nodes in the
network. The nodes accept the block and add it on the Blockchain provided
transactions in the block match with transactional history of the Blockchain.

Miners are rewarded once a block that has been mined by them
gets added to the network e.g. for the Bitcoin network a miner gets a certain
amount of BTC for each block mined in addition to the transaction fees paid by
Bitcoin users.

After a new block has been added to the network, miners need
to start afresh with a new block by picking new (non-validated) transactions
from the pool. They cannot continue with the older blocks there were working on
earlier. This is because the block they were mining may contain one or more
transactions present in the block just added to the network. This renders the
older block invalid for mining.

Blockchain is shaping
the world around us: applications of Blockchain

Earlier restricted to cryptocurrencies, Blockchain
technology has been well-researched and applied to every industry imaginable.
Some applications are listed below:

Insurance
claims: The insurance industry is rife with issues that hamper claim
processing on time. There can be difficulty in verifying claims or
understanding complex terms of contract or there may be inadequate information
available. These issues affect all the stakeholders involved, be it the
claimant, the insurer or any third-party.

To deal with these issues,
insurance companies have begun using so-called ‘smart contracts’ in Blockchain.
Under smart contracts, all the stakeholders in the claim have an access to the
insurance ledger (or network) to understand policy details. If someone makes a
claim, other relevant documents such as claim forms, proof supporting the claim
etc. get added to this ledger and claims are processed automatically with
minimum human intervention.

Here, all the stakeholders
interact directly without intervention of a third-party. Besides, every
interaction gets recorded on the ledger and broadcast to all the parties
involved. Smart contracts also minimize the possibility of error.

For instance, AXA
has developed an insurance product Fizzy
that uses Blockchain platform Ethereum to offer automatic compensation to
policyholders whose flights get delayed.

When someone buys insurance on
Fizzy, the transaction gets recorded on the Ethereum Blockchain. The Blockchain
is linked with air traffic database provided by third-parties. When the
database shows a policyholder’s flight delay by more than 2 hours, the
compensation gets released automatically.

As of now, Fizzy is in the testing
phase and covers direct flights between Paris’s Charles de Gaulle airport and
the USA. AXA aims to partner with travel companies and airport authorities to
expand the solution internationally.

Food traceability: Retail chains have been dealing with the
issue of poor food quality for ages.

To tackle this, Blockchain platforms such as IBM Food Trust
have come up, which can track food items from the time they are sown in fields
to the time they are placed on shelves in retail stores.

IBM Food Trust connects all the stakeholders
in the food supply chain i.e. farmers, distributors and retailers to create an
immutable shared record of food data.

In September 2018, Walmart announced
it would use the platform to track all the leafy vegetables brought to its
shelves. The retailer has also issued a mandate which requires the suppliers of
lettuce, spinach and other green leafy veggies and their partners to join the
platform by September 2019. Read more.

A supply chain present on a Blockchain is
more traceable, transparent and reliable. It makes all the stakeholders more accountable
as they cannot afford to bring below par food items in the supply chain any
longer.

Retailers can detect any infected food item
early in the supply chain and prevent any epidemic outbreak. E-coli
outbreak which affected many Americans last spring could have
been prevented if Blockchain solution were in place. Read more.

Before IBM Food Trust came into the picture,
it would require Walmart at least 7 days to trace the source of a food item.
With Blockchain, the time has been reduced to just 2.2 seconds.

“You’re capturing real-time data at every point, on every single food product,”

Yiannas quoted

Identity verification: Identity verification typically consumes a
lot of time and resources. People have to go through KYC verification from
scratch every time they start something new, be it joining a new job, opening a
bank account, registering a new company or applying for a driver’s license.

The new identity verification platform Civic
powered by the Ethereum Blockchain is seen as a major breakthrough in this
space. The user of the platform has to provide his identity details just once.
Any organization or service provider wanting to verify user’s identity can
cross-check all details on the Blockchain network.

The Civic ecosystem involves three interdependent entities: a user, an
identity validator and an identity requestor. A user is any person who wants to
register an identity on the Civic platform. He can do so by downloading the Secure Identity application.

An identity validator is an entity that validates user’s identity. The
validator (with due consent from the user) can sell the user’s identity to a
requestor in exchange for civic tokens. An identity requestor can be any
service or organization such as a bank or an employer that wants to verify
user’s identity.

Let us say a person ‘John’ wants to register on Civic. John downloads
Secure Identity app. He enters all the requisite personal identity information
such as name, address, date of birth, social security number, driver’s license
and passport number. He secures all the information using his fingerprint. He
doesn’t need to use any username and password.

Now a bank (which is a validator here), verifies the details provided by
John using a standard verification procedure. The bank cross checks all
information provided by John using a reliable third party (such as public
records) and stores his verified identity details on the Blockchain not
directly, but in form of hashes. This makes all the information highly secure.

John now applies for an insurance policy. The insurance company (an
identity requestor here) communicates with John and submits a data request to
the bank. The bank with John’s consent sells ‘access rights’ to the insurance
company. The company verifies John’s identity and both John and the bank receive
tokens.

While Civic and other such platforms may still be in the nascent stage,
they promise to considerably reduce the time and effort needed for identity
verification. Besides, they assure users of the security of their personal
information.

Cross-border transactions: While the financial world has succeeded in
bringing everything online, cross-border transactions are still considered a
hassle by many.

The traditional network for cross-border
payments suffers on several counts. A cross-border transaction takes anywhere
between three to five working days to complete.

A single transaction involves many parties,
each party levies a fee on the transaction amount. For high transaction volumes
fees may be less; but for lower volumes fees can be up to 10% of the
transaction amount. Besides, it is very difficult to keep track of the money
while in transit. The receiver is not certain when the money will reach him.

To improve this scenario, financial institutions are teaming up with technology companies to develop Blockchain solutions that facilitate cross-border payments.

Blockchain platforms, when fully functional, would facilitate direct
payment between the sender and the receiver and eliminate the middleman. The
transactions would not carry hefty charges characteristic of traditional
transfer networks. Besides, cryptographic hashing would ensure that the
transactions remain secure.

Land Registry: The current land registry space is replete
with instances of corruption and inefficiency, more so in developing countries.
In several cases, the land in question is disputed and the rightful owner
cannot be identified.

Sometimes, the owner is not certain if he
legally owns the place even when he has all the requisite documents. Then there
are cases when the buyer is not sure if the person selling the land is the
rightful owner. If the buyer or the seller loses one or the other document,
matters become even worse.

Using an appropriate Blockchain solution, the land registry authorities
can create an immutable record of all land transactions which all parties can
see at any time but can never modify. This would reduce time and cost involved
in transactions and prevent any dispute.

To understand this better, consider two parties, a buyer ‘A’ and a seller
‘B’ who have negotiated the terms of sale of a land and want to register this
sale with the local authorities. So, both ‘A’ and ‘B’ go to the government
office where an officer registers the sale into their system, now operating on
Blockchain platform.

The system records the transaction in presence of both ‘A’ and ‘B’ and
processes sign-offs by both the parties. The transaction now moves to
verification stage. Post verification, the system automatically transfers
ownership from ‘B’ to ‘A’.

In a path-breaking move, the United
Nations Development Program (UNDP) has teamed with Block chain
companies to bring land registry on Ethereum Blockchain for the city of
Panchkula in Haryana, India.

In another instance, UK government’s HM
Land Registry has partnered with software company Methods
who will use Blockchain platform to work on a project entitled, Digital
Street. The project involves research and development to
understand how Blockchain and smart contracts can transform the buying and selling
of property in the UK. Read more.